The states of New York, Connecticut, Maryland and New Jersey has sued the U.S. Government in federal court seeking to overturn the $10,000 limit on state and local tax deductions that was enacted as part of P.L. 115-97 (Tax Cuts and Jobs Act).
Under the New Law, individuals are allowed to deduct up to $10,000 in state and local income tax deductions (SALT Tax). Congress has included a deduction for all or a significant portion of state and local taxes in every tax bill since the enactment of the first federal income tax in 1861.
The states argue that the SALT deduction is essential to prevent the federal tax power from interfering with the States’ sovereign authority to make their own choices about whether and how much to invest in their own residents, businesses, infrastructure, and more. They argue that the restriction on deductibility of state taxes violates the Tenth Amendment as it “deliberately seeks to compel certain states to reduce their public spending.
The complaint alleges that residents of the plaintiff states will see a significant increase in their federal taxes as a result of the cap but will receive the least benefit from the TCJA. The complaint state the limit will cause significant and irreparable hard to the states and their residents. The complaint asks the court to declare the cap on the state and local tax deduction unconstitutional and to issue an injunction barring its enforcement.
It may go all the way to the Supreme Court and more states may get involved. If you want to see what effect the TCJA has on 2018, please call our office.